Crypto-backed loans allow holders to access cash using their digital assets as collateral, without selling and generally avoiding a capital-gains event in the process. As cryptocurrency markets have matured, a growing ecosystem of centralized and decentralized lending platforms has emerged to serve holders who want liquidity without divesting—though the sector's track record has been mixed, punctuated by high-profile failures that reshaped borrower expectations around counterparty risk.

According to Figure, borrowers evaluating crypto-backed loan products should compare four key factors: maximum loan-to-value (LTV) ratio, fixed versus variable interest rates, regulatory licensing, and liquidation terms. The lender emphasizes that licensing and liquidation protection carry more significance than the headline interest rate, and notes that the product is appropriate only for holders comfortable with margin-call risk.

How Crypto-Backed Loans Work

For long-term crypto holders who need short-term liquidity, selling assets can trigger a taxable event while forfeiting future upside. A crypto-backed loan offers an alternative: borrowers pledge cryptocurrency as collateral and receive cash while retaining ownership of their holdings. The mechanism parallels securities-backed lending in traditional finance, where investors borrow against stock portfolios rather than liquidating positions—a strategy long used by wealthy investors to access liquidity efficiently.

Borrowers pledge assets such as Bitcoin, Ethereum, or Solana as collateral, and the lender advances cash. Through Figure, borrowers can access up to 75% of their collateral's value. Because borrowing is not classified as a sale, it generally does not trigger a capital-gains event. Figure notes that borrowers should consult a tax professional regarding their individual circumstances.

Four Factors to Compare

Figure identifies four criteria that distinguish established lending platforms from riskier alternatives:

Fixed vs. Variable Rates. Some lenders offer low introductory rates that fluctuate with market conditions. Figure's crypto-backed loan carries a fixed rate for the full life of the loan, meaning monthly payments remain constant regardless of market movement. Borrowers who experienced variable-rate products during prior market downturns have sometimes faced unexpected payment increases, making rate structure a critical comparison point.

Regulation and Licensing. The CeFi lender collapses of 2022—most notably Celsius Network, BlockFi, and Voyager Digital, which collectively filed for bankruptcy after freezing customer withdrawals—highlighted the distinction between a "crypto lender" and a "licensed lender." These failures resulted in lengthy bankruptcy proceedings and significant customer losses, underscoring the importance of understanding how and where a platform is regulated. Figure Lending LLC operates as a licensed lender (NMLS #1717824), which the company describes as a materially different risk profile compared to an unregulated offshore platform holding customer assets.

Speed Without Credit Requirements. Figure funds loans on the same day and does not require a credit score. Approval is based on the value of the collateral rather than the borrower's FICO score. This collateral-based approval model makes crypto-backed lending accessible to borrowers who may not qualify for traditional credit products.

Downside Protection. Given cryptocurrency's volatility, sharp price declines can trigger liquidation. During the 2022 market downturn, Bitcoin fell roughly 65% from its all-time high, illustrating how quickly collateral values can shift and why liquidation terms matter. Figure offers an optional Liquidation Protection feature (available in select states) that defers price-based liquidation for the duration of the loan term, aiming to prevent forced sales during temporary market downturns.

Figure advises that while interest rates matter, a lender's licensing and liquidation terms are ultimately what protect borrowers when volatility strikes. The lender recommends comparing all four factors: maximum LTV, rate type, regulatory standing, and collateral treatment in adverse market conditions.

Product Details and Terms

Crypto-backed loans are not suited for every investor. Figure notes that if the possibility of a margin call would cause significant concern, the product may not be appropriate. However, for long-term holders seeking liquidity without divesting, a fixed-rate, fully licensed loan can serve as an efficient mechanism.

Key Terms:

• Maximum APR: 12.62% (including interest plus applicable fees such as a 1% origination fee)
• Available rates: 8.91% (9.999% APR) at 50% LTV, or 11.50% (12.62% APR) up to 75% LTV
• Repayment period: 12 months, interest-only
• Maximum initial LTV ratio: 75%

Representative Example: A borrower receiving a Crypto-Backed Loan at 50% LTV of $10,000 for a 12-month term, with an interest rate of 8.91% and a 1% origination fee of $100, would result in an APR of 9.999%. The borrower would receive $10,000 and make 12 monthly payments of $74.25. Rates are higher for applications secured by assets with a higher LTV ratio.

Liquidation Protection Details

Liquidations will still occur if a loan becomes delinquent. Liquidation Protection applies only to margin calls and liquidations related to price declines—not to missed payments, defaults, or violations of loan terms. The feature is available in CA, NY, FL, PA, AL, AK, GA, HI, MA, and UT.

Crypto borrowing is generally non-taxable, but liquidation triggers an IRS taxable sale. Figure advises consulting a CPA for tax guidance.

Availability and Regulatory Information

Crypto loans are offered to U.S. borrowers by Figure Lending LLC. The product is not available to U.S. residents of DC, ID, IL, KY, MD, MS, SD, TX, VT, or VA.

Crypto loans are offered through Figure Markets Credit LLC to residents of New York state and to international customers, with the exception of the following jurisdictions: Crimea (Ukraine), Donetsk (Ukraine), Luhansk (Ukraine), Afghanistan, Albania, Belarus, Central African Republic, Congo (the Democratic Republic), Cuba, Ethiopia, Haiti, Iran, Iraq, Lebanon, Libya, Mali, Myanmar, Nicaragua, Nigeria, North Korea, Pakistan, Palestine, Russia, Somalia, South Sudan, Sudan, Syria, Ukraine, Venezuela, Yemen, and Zimbabwe.

Figure Lending LLC dba Figure is located at 650 S. Tryon Street, 8th Floor, Charlotte, NC 28202 (NMLS ID 1717824). Figure Markets is located at 650 California, Suite 200, San Francisco, CA 94108. Figure Payments Corporation, which offers self-directed investors and traders cryptocurrency services, is neither licensed with the SEC or the CFTC nor a Member of NFA (NMLS ID 2033432, located at 100 West Liberty Street, Suite 600, Reno, NV 89501).

Investing in cryptocurrencies involves significant risks. System access and trade placement and execution may be delayed or fail due to market volatility and volume, quote delays, system and software errors, Internet traffic, outages, and other factors.

This article is a paid endorsement by Figure Technology Solutions, Inc. The information contained herein is not, and should not be construed as, an offer to sell or the solicitation of an offer to buy any securities. Consult a financial advisor before making any decisions.